Hi Cliff,
Thanks for posting this interesting scenario. In fact I will make a new blog post about the ESXi lab scenario.
Ok, first things first. Scenario-2 is the way to build the test lab. I think you have it about 99% configured correctly. All that is needed is to enable promiscuous mode on the vswitches (if you used separate ones) or on the port groups level (if you used vlans). To enable promiscuous configure the vswitch and then edit the security settings and select accept promiscuous.
Another way to build a lab is to use three VLANs in the same offline vswitch. In the image below I created three port groups, each with a VLAN. Like in your example I used WAN (Vlan10) Local1 (Vlan11) and Local2 (Vlan12). The topology then looks the same:
server1--[Local1]--wanos-core--[WAN]--wanos-edge--[Local2]--PC2
The vSwitch configuration for this topology:

Just for the record here is also a screenshot of the promiscuous mode configuration:

A diagram of the virtual network:

Since the devices have a software link between them consider enabling the WAN Simulation for testing purposes.
For more detailed steps the ESXi Lab Guide is available
http://wanos.org/wanop/?p=1324